SECURITY RIGHT OVER MOVABLE PROPERTY IN KENYA

(MPSR: series 2)

Introduction

In our previous article, we discussed the procedure and requirement for registration of security right over movable property in Kenya. (Check out our previous article here: https://aowangaadvocates.com/registration-of-security-right-over-movable-property-in-kenya/)

In this insight we will discuss the different type of notices under the Movable Property Security Rights Act, 2017, when to file the notices and priority of rights under the MPSR Act.

As earlier stated, a security right is a property right in a moveable asset that is created by an agreement to secure payment or performance of an obligation and is created by a security agreement between the grantor and the secured creditor, provided that the grantor has rights in the asset to be encumbered.

For a security agreement to be valid, the same must:

1. Be in writing;
2. Be signed by the grantor;
3. Identify the secured creditor and grantor; and
4. Describe the secured obligation.

Notices under the MPSR Act

There are three kind of notices that may be registered in the MPSR Registry and they include:

1. An initial notice.
2. An amendment notice. And
3. A cancellation notice.

1. INITIAL NOTICE

The initial notice is the first notice that captures the registration of security right over a movable asset. It usually appears as form 4 at the registry and it captures the following:

1. The identity and address of the grantor.
2. The identity and address of the secured creditor.
3. A description of the collateral.
4. Period of effectiveness of the security right. and
5. Any other information for statistical purposes.

Upon registration of an initial notice, the Registrar enters the information on the notice into the Registry records and the registrant receives a printable copy of the information contained in the notice, including time of registration and registration number.

NOTE:

1. The secured creditor must send the information contained in the initial notice to the grantor within TEN DAYS of receipt once the notice is registered. In other words, the secured creditor must send a copy of the initial notice to the grantor within 10 DAYS of registration of the initial notice.
2. An initial notice is effective for the specified period but shall not exceed ten years. Extension beyond 10 years may only be sought within six months prior to expiry.
3. An error in the grantor identifier such as the ID number or in the description of the collateral renders the notice ineffective.

• AMENDMENT NOTICE

This is registered by the secured creditor if the initial notice contains information outside the grantor’s scope of authorization, or if the security agreement is revised to delete some collateral and/or there is a change in the grantor identifier after registration of the initial notice. This change should be done within sixty days to avoid loss of priority.

An amendment notice can also be done when the collateral has been transferred to a new owner provided the owner is acquiring the asset together with the obligations of the security right. This is to be done within 10 working days upon acquiring knowledge of the transfer and transferee’s identifier.

• CANCELLATION NOTICE

This notice is registered by a secured creditor:

1. On termination of a security right in the collateral.
2. If the initial notice was not authorized by the grantor.
3. If the authorization has been withdrawn and no security agreement has been concluded. Or
4. If the security right to which the notice relates has been extinguished and the secured creditor has no further commitment to provide value to the grantor.

Other important points to note:

1. A grantor must authorize the registration of a notice in the MPSR Registry. and there are two forms of authorization one, signature on the security agreement and two, separate authorization in writing commonly provided in anticipation of executing a security agreement.
2. Oral or voicemail authorizations are not recognized.
3. For certain amendments, such as adding new collateral not previously listed in a security agreement or a new grantor, additional authorization is required.
4. For other amendments, such as change of address or name of the secured creditor, or grantor, no authorization is needed.
5. In order to prevent the risk of third parties fraudulently amending or cancelling registrations, only the secured creditor is authorized to amend or cancel its registration.
6. Registration of an initial notice perfects the security right, creating third party effectiveness. Where a security right in a collateral is effective against third parties, then such effectiveness will extend to the proceeds of such collateral.
7. Certain proceeds including money, receivables, negotiable instruments and/or rights to payment of funds credited to a deposit account, acquire third-party effectiveness without any further action of the grantor or the secured creditor.

PRIORITY

1. Priority among competing security rights may be created by the same grantor in the same collateral and it is determined according to the time of registration of the initial notice. Knowledge of the existence of a security right in favour of another person on the part of a secured creditor does not affect its priority.
2. A security right created by a grantor is subordinate to a security right in the same collateral created by another person if the grantor acquired the collateral subject to the security right created and made effective against third parties by the other person before the grantor acquired it.
3. Non-consensual creditor has a priority over the security right only if he had registered a notice with the Registrar before the security right was made effective against third parties.
4. An acquisition security right is a security right in an asset securing an obligation to pay any unpaid portion of the purchase price to enable the grantor to acquire it. It has priority over a competing non-acquisition security right provided a notice thereof is registered before the grantor obtains possession of the asset.
5. A possessory lien on goods has priority over a security right as long as the holder of the possessory lien remains in possession of the goods.
6. A buyer or other transferee of the collateral such as lessee or licensee acquires its rights free of the security right if the secured creditor authorizes the sale or transfer.
7. The rule of the innocent purchaser without notice applies to an ordinary buyer or lessee provided that he did not have knowledge that the sale or lease violates the rights of a secured creditor.

At A.O.WANGA ADVOCATES we are happy to assist you with creating security over movable assets and registration of amendment or cancellation notices.

Contact us on info@aowangaadvocates.com or +254794600191.

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